Can Equity Investors Profit from Elections?

Abstract

Indications that suggest equity investors can profit from elections are problematic for three reasons. First, the research assumes that political variables alone determine stock market performance. Therefore, this article controls for other factors, namely, total and systematic risk. Second, given the limited usefulness of temporal variance for practitioners, this study examines international data and thus broadens the potentially applicable findings. Third, the research provides minimal theory regarding “significant” relations; this article modifies the hypotheses to incorporate rational expectations. All in all, both evidence and theory regarding political effects are ambiguous.